Working with a Financial Advisor: What it’s Really Like

July 20, 2016

After receiving different offer letters, I reviewed my financial outlook would be with each position. I considered the cost of living in each city, the weather, and the distance from things I loved (looking at you, East Coast!). After accepting a job, I turned to a budget.

Not having a clue about where to set a budget, I began where I begin with most things, Pinterest. I slowly realized this was a dark hole where none return. Everything I reviewed focused on having a mortgage, kids, or spouse. Being a single college graduate, none of those outlooks applied.

I then turned to my next option: talking to my parents. I began by sitting down with my dad to discuss where I should be spending my income after I set my living expenses. My dad is in a similar field, so it made more sense. After this discussion, I turned to my mom. She reviewed my plan then saved me $1,000 per month. It turns out, my dad kept everything the same for the house they owned compared to my rented apartment.

I say this to emphasize, even the right avenues can turn out wrong when it comes to financial planning. After this experience, I turned to the experts. I asked a few different Financial Advisors I’ve known over the years about the basics of budgeting, savings, and talking with a financial professional. Their names are not disclosed to keep in line with federal regulations.

Before Meeting with a Financial Advisor

If you’re a recent graduate, or under the age of 30, chances are, financial advisors haven’t crossed your mind. I completely understand. I would be in the same boat if a financial advisor hadn’t reached out to me when I was a junior in college. The main argument he made for even considering it was this:

Most savings accounts average less than 1% interest. The standard inflation rate used in economics is 2% per year. With this system, you’re losing money in savings accounts due to inflation.

This fact was startling. Beyond that, there were so many options built into my offer package when it came to retirement. The standard rule of thumb is to invest what you can up to the company’s match amount. If you put in below the company’s match amount and put other money to sit in savings, you lose free(ish) money. However, if you put in more than the matching amount and need it later, there are huge tax penalties on taking out the income. All of this depends on the specific account, so talk to your Human Resources department about specifics.

Task List to Complete Before Talking to a Financial Professional

Start gathering relevant financial documents in one place

Look into disability insurance: benefits received by employees from employers are taxable, which means you get around 40%

Establish a Budget Using Mint

Start an emergency fund of 6 months of living expenses

Talk to a financial advisor after establishing savings over 6 months

Things to Look for in a Financial Professional: The Consultant versus The Sales Agent

Now that you ideally have a savings of 6 months of living expenses, it’s time to look for a financial advisor. The major thing to watch out for when looking for at a financial planning service is the approach of your representative. Are they looking at a holistic approach with your end goals in mind? Or are they starting you off with a packaged plan that doesn’t seem to fit your needs.

There are two major systems within the financial planning field: The Consultant versus The Sales Agent. The consultant will create a package solely fit on your needs. The Sales Agent will focus on meeting their monthly quotas. Just like the overly drunk guy at a party, you can typically spot the Sales Agent from a mile away.

When considering this system, make sure whoever you choose will call out the elephant in the room. At the end of the day, you’re hiring a financial advisor to make you successful in the long run. If spending becomes crazy or you’re not sticking to the plan you paid for, ensure your trust is with someone who will call you out and help you get back on track. This will be the main difference between the Consultant versus the Sales Agent. When someone is only looking to fill quotas, they are not going to look into the individual details of your plan.

Beyond this, make sure the person you are choosing is a personality fit. Are they going to judge you for your $50 Stitch Fix obsession every month like your mom? Are they going to talk you into the latest and greatest software upgrade you don’t really need? Do they truly understand what your end goals are? Does their use of technology match yours? All of these questions are something to consider. When choosing your financial professional, make sure you’re on the same page about communication and expectations. Modern technology makes it where your advisor doesn’t need to be in-state. But, they need to contact you at least once per year, according to federal regulations. Will this be a call you look forward to or a call that you dread?

What It’s Like to Meet with a Financial Advisor:

Your initial meeting will be like the nurse’s station of a doctor’s appointment. You will discuss the current situation, figure out the facts, and decide if it makes sense to move forward. At this stage, they will give you a set of general recommendations of what you can expect, should you move forward. This meeting is all about ensuring it’s the right alignment to your future goals.

The second meeting can be time consuming, depending on your end goals. In this meeting, you will discuss cash flow, personal risk tolerance, retirement timelines, and a detailed version of accounts. This is where you will put your financial plan together. These meetings range from 1-6 hours, depending on your financial situation.

After this, your financial advisor will reach out to your once a year to update you on your financial standing. However, you should inform your financial advisor of any life changing circumstances occur. The main ones are:

Changing Jobs

Changing Cities

Purchasing a House

Getting married/divorced

Having Kids

Combining Incomes

The final thing I discussed with these financial professionals is what to do when you start to combine incomes. To me, this was the biggest piece of advice I couldn’t accurately google. The main pieces they advised made so much sense! Here are their items to discuss:

Cash flow management

Emergency funds

Life Insurance

Retirement funds

Student loan debt

Cash Flow Management: Things like Spotify subscriptions, eating out, and shopping until you drop seem fine when there are separate incomes. However, once you start to combine them, it makes sense to talk about a combined budget. There are line items like video games, going out, and shopping habits that should definitely be adjusted according to your end goals.

Emergency Funds: The chances of you and your significant other both losing your jobs are fairly low. Therefore, the experts recommend keeping 3 months worth of savings. When doing the math, this is roughly the same amount (depending on how varied your incomes are).

Life Insurance: Obtaining life insurance is definitely a good idea if you’re going to be relying on each other’s incomes to make ends meet. However, it’s also worth making sure you and your partner know where this information is, god forbid anything happen. This is definitely one of those doomsday scenarios, but it’s better to be safe than sorry.

Retirement Funds: Establishing 401ks and how much you want in each account is necessary for your long term growth. Talk about the rates, company matching, and current amount in each account.

Student Loan Debt: This has the potential to be the largest surprise in your relationship. Student loans are no secret, but the amount varies per person. Talk to your partner about how many loans each of you have and how long you plan to pay it off.

Do you have any questions about talking with a financial professional? Is there another industry or “adulting” scenario you want to know more about? I’d love to hear about them in the comments below!